Basic Definitions What is Tax Deductible Tax deductible

Basic Definitions • What is Tax Deductible? – Tax deductible means that whatever amount you contribute to an investment is tax deductible to you at the end of the year. Example: You earned $50, 000. 00 gross income this year and you invested $3, 000. 00 into an investment. Your adjusted gross income (income you must pay taxes on) is now only $47, 000. • What is Tax Deferred? – Tax deferred means that interest on your principal plus interest earned on interest is not taxable every year. • What is Tax Exempt? – Tax-free means that when you receive or earn money there is no taxation on any gains. • Tax Deductible/ Tax Deferred Vehicles: – 401(k), IRA, TSA, SEP, IRA, Deferred Comp. , etc. • Tax Deferred/ Tax-Exempt Vehicles: – Cash Value Life Insurance, Roth IRA, Muni-bons & Reverse Mortgages. • Tax Deferred: – Annuities, Investment property.

Your Savings will fall into one of these three circles: Tax Exempt Roth IRA Muni-Bond Funds Cash Value Life Insurance Reverse Mortgages Taxed Now (Not Tax Deferred) Money Market Mutual Funds CD, Stocks, Bonds Taxed Later ( Tax Deferred) 401(k), IRA, TSA Annuities Investment Property Information deemed reliable but not guaranteed.

Ways Taxes Can Impact Your Money Assume a 12% Rate-of-Return for a 20 year period with a annual contribution of $2, 000 per year. Qualified Plans $2, 000 x 30%=$600 Total Contributions = $40, 000 Total tax-deductible Savings =$12, 000 Over$160, 000 30% = $48, 000 in taxes paid (4 times original tax savings) 15% = $24, 000 in taxes paid (2 times original tax savings) 10% tax penalty prior to 59 1/2 Index Universal Life Term/ Index account – No tax-deductible savings – Tax-free loans (can borrow against Surrender Value any time*) – Prior to 59 ½ – After 59 ½ *Loans are limited to the amount you can borrow in the earlier years do to a surrender charge. *This is information only, consult your tax advisor for your individual circumstances

Following is a table comparing different savings vehicles. Assumptions are: (a) a 30 year old female (b) $3, 000 per year contribution; (c) 7. 9% annual return on investment; (d) 28% income tax rate. Total Tax Deductions Account Value In 20 Years After Tax Account Value In 20 years IRA, 401(K), TSA, etc. $16, 800 $146, 501 $90, 830 (1) Roth IRA None $146, 501 $113, 631 (2) Mutual Funds, Stocks, Bonds, etc. None $112, 797 (3) Annuity None $146, 501 $113, 631 (2) Cash Value Life Insurance None $135, 270 1. 2. 3. 4. $135, 270 (4) Plus a $250, 250 death benefit $146, 501 minus 28% taxes plus a 10% penalty. $146, 501 with a cost basis of $60, 000 minus 28% taxes plus 10% penalty Tax gains at 28% per year. The life insurance plan is Indianapolis life’s Alliance Performance Series II. The illustration was for a 30 year old female with projected account values based on the non-guaranteed rate of 7. 9, a rating of preferred non-tobacco and a starting death benefit of $106, 073. As with any financial product purchased, the decision as to who the owner and beneficiary will be made by the client after consultation with his or her tax and legal advisors.